Friday, December 17, 2010

Ireland is doomed because of the credit rating system that the world economy puts great store by says so. Moody's had previously rated Ireland as AA2 – the third highest level. Today's downgrade to BAA1 leaves its sovereign credit rating just three places above 'junk status', and follows a similar move by fellow ratings agency Fitch last week.

Now we come to Spain which currently has an AA1 rating.

Who is it that decided upon that? It turns out she is German.

No, the middle-aged German woman playing God over Spain is not Angela Merkel. The German chancellor is central to the battle to defend Spain that was again being fought out at today's Brussels EU heads of government summit.

It turns out, the person whose thumbs-up or thumbs-down can shape Spanish life for a decade or more is one Kathrin Muehlbronner, a polyglot economics graduate of the university of Tübingen.

Muehlbronner is a vice–president and senior sovereign risk analyst specialising in Spain at Moody's credit ratings agency. That makes her the woman whose say-so can plunge Spain into the unknown by the simple act of declaring that Europe's fifth largest economy no longer merits its Aa1 rating.

This week Muehlbronner stopped short of actually making that decision. Moody's believes that the downside risks warrant putting Spain's rating under review for downgrade. Moody's does not believe that Spain's solvency is under threat," she conceded, whereupon both euro and markets rallied a little.

If she had decided otherwise, then many more Spaniards would have lost their jobs, many more would have been unable to pay their mortgages. The austerity measures required would have eclipsed those of Ireland and Greece. In fact the whole Eurozone would have been under threat.